Make money by writing call & put options

#22
If stock goes down and the put is in the money on expiry date than you will own the stock, which in any case you wanted to buy, but at a far lower price. It is like buying stock on 10% Sale
Dear wastej

In India options are not physically settled through delivery of underlying scrips,but settlement is done in cash, and as such it is not possible to put this suggestion of yours into practice here.

Your inputs on option trading are excellent, please do continue

Best regards

K Kannamthanam
 
#23
Hi Kannamthanam,

It is even better that options sold will be settled in cash instead of stock. Now you have two choices, first to take the cash and be happy or secondly to buy the stock with it. In either case you can put this into practice, I do not see any reason why it can't be put into practice, if I am missing something please, let me know.

Regards,

Wastej
 

mgr

New Member
#24
Hi can anyone Help me get a little grasp?

Just as an example i buy 2000 Quantas American Instalment Call options 2010 at $0.70 with a strike price of $2.25, would i not be a fool not to buy this option and exercise it straight away as i would be exercising the option at a lower market price than the stock i can take delivery of the stock and straight away be in profit OR am i missing something.

Thanks for any help.
 

vince

Active Member
#25
mgr said:
Hi can anyone Help me get a little grasp?

Just as an example i buy 2000 Quantas American Instalment Call options 2010 at $0.70 with a strike price of $2.25, would i not be a fool not to buy this option and exercise it straight away as i would be exercising the option at a lower market price than the stock i can take delivery of the stock and straight away be in profit OR am i missing something.

Thanks for any help.
Hi mgr,

Options can be exercised only if in the money. If your call strike is 2.25 you can exercise at a price > 2.25.
 

sh50

Active Member
#26
The basic issue here is how to get the correct view of what is going to happen a month assuming that options are written on the first of the month.

There is no surefire way of knowing where the price is likely to be. I look at previous two- three periods supports and resistances.

Other is combining the historical volatility with normal distribution and taking out limits for 66,95 and 99 probability

The third is to calculate the Delta value and monitor it. The more it is, the more in the money the option likely to be.

One has to compare price movements with nifty movements as well.

How does one judge initially and as the month passes. Anybody on that?

Which are the other ways of earinig consistent money. Some one mentioned credit spreads (Bear call spread and bull put spread). Anything else?
 

peru

New Member
#27
Hi,TATrader,Sh50,Traderji,and all others in this forum,

Before proceeding with the actual aspects of option trading,I would like to discuss
for the newcomers,(I,also ,myself ,belong to that category only)why we can switch over to option trading,instead of only depending on the equity market for churning profits(or loses!!whatever way we want to interpret!!).

In the truest sense ,option trading is more of a hedging tool(which will be discussed much later),than a trading tool.But then,if utilised very cautiously,with a proper understanding of the directional movement of the stock (under consideration) ,and its corelation with the movement of the NIFTY,it can be utilised as a specialised trading tool(even a good intraday tool),for maximising the profit with the minimum investment.

I,being a common man ,would say it from my perspective,why I got interested in option trading.

Suppose ,I have a capital of Rs. 10,000 and nothing else.I have scrutinised the scrips of the stockmarket very minutely,and have made a small database of some of the best scrips in the market;for eg. INFOSYS,TCS(the irony's of today's market!),DIVIS LAB,Dr. REDDYS,etc.But then ,as these stocks are quite high priced,and are not suitable for my budget,---I have narrowed myself down to TISCO and NTPC.

Now, considering an investment in TISCO:
An investment of Rs.10000 enabled me to buy 28 shares of TISCO at the level of Rs.347.2 per share(as on 19th April'05 close)

I also, am certain that,there is a good probablity of TISCO bouncing back to a level of Rs.375 withen the next 4 days.
Suppose,considering an hypothetical situation ,my assumption turns out to be true,and I sell all the 40 shares which I have bought making an investment of Rs.10,000 on 4th day.
Then considering my all inclusive brokerage of .644%(in both legs):
My Net Profit =Rs.648.17(which is availableto me 2 days afterI have sold;considering my selling to be either on Mnday or Tuesday)
Effective period of investment=6days
Thus effective %monthly return=[(((648.17/9784.2)*100)/6)*30]%=33.1233%

Now ,I come to the profitability in option trading:
On 19th April, I buy 390's CALL of TISCO at a premium of Rs. 1/unit(LOT_SIZE=1350)

After 4 days ,my predction came out to be true.
It can be shown through an option clc that the option premium will now rise to approx.
2.6
here,my net investment=1350+697.52(Brok.)=2047.52
My net return (excl.Brok.)=2925.399(Brok.584.6)
Net Profit=877.87
%monthly return=214.374%!!!!!!!
UnBelievable!!! Who says out of money call transaction an ametureist work!!!Probably
it is the imaginative creation of a super professional!!!
{NB:Don't believe that such transaction are always possible.Actually this type of call buying and selling is really Ameturistic.)


Actually a complete knowledge of Nifty movement and a good forsight can give a real good profit even in day trading in options.

This much for today only.
Regards,
joy_mitali
Enjoyed it ,Worthy reading.:)
 
#28
What will be the profit for example for the option strategy as shown below. Prices are taken from today's closing ( 08-Mar-2007)

Purchase RCOM CA 420 @ 25.25
Rs ( 25.25 * 700) will be blocked

Sell RCOM CA 430 @ 20.10
Rs ( 20.10 * 700) will be received today
Margin amount for selling RCOM CA 430 will be blocked

Query
1. What will be the profit/loss on 29 March 2007 if RCOM closes at 431
2. Will the margin amt get "automatically" released on 29 March ?
 

vince

Active Member
#29
What will be the profit for example for the option strategy as shown below. Prices are taken from today's closing ( 08-Mar-2007)

Purchase RCOM CA 420 @ 25.25
Rs ( 25.25 * 700) will be blocked

Sell RCOM CA 430 @ 20.10
Rs ( 20.10 * 700) will be received today
Margin amount for selling RCOM CA 430 will be blocked

Query
1. What will be the profit/loss on 29 March 2007 if RCOM closes at 431
2. Will the margin amt get "automatically" released on 29 March ?
Hello,

Your inflow 11x 700 + 20.1 x 700

Your outflow 1 x 700 + 25.25 x 700

Brokerage extra.

You can work out the rest .:D
 

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